83 FR 9351 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7018(a)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 43 (March 5, 2018)

[Federal Register Volume 83, Number 43 (Monday, March 5, 2018)]
[Notices]
[Pages 9351-9354]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-04420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82790; File No. SR-NASDAQ-2018-013]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 7018(a)

February 28, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 9352]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 13, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees to 
modify the credits provided for displayed Designated Retail Orders 
under Rules 7018(a)(1)-(3).
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on February 1, 
2018.\3\
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    \3\ The proposed fees were initially filed with the Commission 
as an immediately effective and operative rule change on February 1, 
2018. See SR-NASDAQ-2018-009. The Exchange is withdrawing SR-NASDAQ-
2018-009 and replacing it with this filing, which makes a technical 
correction and descriptive changes to the proposal.
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    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the credits 
provided for displayed Designated Retail Orders \4\ under Rules 
7018(a)(1)-(3) by: (1) Reducing the $0.0034 per share executed credit 
to $0.0033 per share executed; (2) requiring members to have a ratio of 
at least 85% liquidity provided through one or more of its [sic] Nasdaq 
Market Center MPIDs to all volume (adding and removing liquidity) 
through one or more of its [sic] Nasdaq Market Center MPIDs during the 
month to qualify for the proposed $0.0033 per share executed credit; 
and (3) adding a new $0.00325 per share executed credit tier.
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    \4\ As defined by Rule 7018.
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    Rule 7018 sets forth the fees and credits for use of the order 
execution and routing services of Nasdaq for securities priced at $1 or 
more. Rule 7018(a)(1) sets forth the fees and credits for the execution 
and routing of orders in Nasdaq-listed securities (``Tape C 
Securities''); Rule 7018(a)(2) sets forth the fees and credits for the 
execution and routing of securities listed on the New York Stock 
Exchange LLC (``NYSE'')(``Tape A Securities''), and Rule 7018(a)(3) 
sets forth the fees and credits for the execution and routing of 
securities listed on exchanges other than Nasdaq and NYSE (``Tape B 
Securities'').
    A Designated Retail Order is an agency or riskless principal order 
that meets the criteria of FINRA Rule 5320.03 and that originates from 
a natural person and is submitted to Nasdaq by a member that designates 
it as such, provided that no change is made to the terms of the order 
with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. An order from a ``natural person'' can include orders on 
behalf of accounts that are held in a corporate legal form--such as an 
Individual Retirement Account, Corporation, or a Limited Liability 
Company--that has been established for the benefit of an individual or 
group of related family members, provided that the order is submitted 
by an individual. Members must submit a signed written attestation, in 
a form prescribed by Nasdaq, that they have implemented policies and 
procedures that are reasonably designed to ensure that substantially 
all orders designated by the member as Designated Retail Orders comply 
with these requirements. Orders may be designated on an order-by-order 
basis, or by designating all orders on a particular order entry port as 
Designated Retail Orders.
    Currently, under Rules 7018(a)(1)-(3) the Exchange provides a 
$0.0034 per share executed credit to members for displayed Designated 
Retail Orders in securities of all three Tapes. There is no 
qualification criteria that must be met to receive the credit under 
Rules 7018(a)(1)-(3). The Exchange is proposing to lower the $0.0034 
per share executed credit to $0.0033 per share executed for displayed 
Designated Retail Orders under Rules 7018(a)(1)-(3). The Exchange is 
also proposing to adopt new qualification criteria for each of the 
proposed $0.0033 per share executed credits under Rules 7018(a)(1)-(3). 
Specifically, the Exchange is proposing to require a member to have a 
ratio of at least 85% liquidity provided through one or more of its 
Nasdaq Market Center MPIDs to all volume (adding and removing 
liquidity) through one or more of its Nasdaq Market Center MPIDs during 
the month to qualify for the $0.0033 per share executed credit under 
Rules 7018(a)(1)-(3). Last, the Exchange is proposing to add a new 
credit of $0.00325 per share executed for displayed Designated Retail 
Orders in securities of all three Tapes under Rules 7018(a)(1)-(3). 
Like the current $0.0034 per share executed credit, the Exchange is not 
proposing any qualification criteria that must be met to receive the 
proposed $0.00325 per share executed credit under Rules 7018(a)(1)-(3).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed $0.0033 per share executed 
credit is reasonable because it is competitive with the credits of 
other exchanges. For example, NYSE Arca provides a $0.0033 per share 
credit for Retail Orders that provide liquidity to the NYSE Arca 
book.\7\
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    \7\ The credit is available to ETP Holders, including Market 
Makers that execute an Average Daily Volume of Retail Orders that 
provide liquidity during the month that is 0.15% or more of the US 
CADV. US CADV is defined as ``US CADV means United States 
Consolidated Average Daily Volume for transactions reported to the 
Consolidated Tape, excluding odd lots through January 31, 2014 
(except for purposes of Lead Market Maker pricing), and excludes 
volume on days when the market closes early and on the date of the 
annual reconstitution of the Russell Investments Indexes. 
Transactions that are not reported to the Consolidated Tape are not 
included in US CADV.'' See https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf.

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[[Page 9353]]

    Currently, members are provided a credit of $0.0034 per share 
executed; under the proposal, the credit will be $0.0033 per share 
executed.
    The Exchange believes that the proposed $0.0033 per share executed 
credit and the proposed qualification criteria required to receive the 
credit is [sic] an equitable allocation and is not unfairly 
discriminatory because the Exchange will apply the same credit to all 
similarly situated members that meet the qualification criteria. The 
proposed $0.0033 per share executed credit and the proposed 
qualification criteria will reduce the cost of the incentive to the 
Exchange while also improving market quality by applying a 
qualification requirement that a member provide a significant share of 
its volume in providing liquidity on the Exchange, namely, a ratio of 
at least 85% liquidity provided through one or more of its Nasdaq 
Market Center MPIDs to all volume (adding and removing liquidity) 
through one or more of its Nasdaq Market Center MPIDs. The Exchange has 
limited funds to apply in the form of incentives, and thus must deploy 
those limited funds to incentives that it believes will be the most 
effective at improving market quality in areas that the Exchange 
determines are in need of improvement. In this instance, reducing the 
amount of credit provided and applying new qualification criteria, 
which not all members that currently qualify for the $0.0034 per share 
executed credit will likely satisfy, should reduce the cost of 
providing credits for Designated Retail Orders. In turn, the Exchange 
would be able to apply any funds realized by the proposed changes to 
other incentives that may improve market quality.
    The Exchange believes that the proposed $0.00325 per share executed 
credit is reasonable because it is competitive with the credits of 
other exchanges. As noted above, NYSE Arca provides a $0.0033 per share 
credit for Retail Orders that provide liquidity to the NYSE Arca 
book.\8\ Like the Exchange's proposed $0.0033 per share executed 
credit, NYSE Arca has qualification criteria required of its 
participants to receive its Retail Order credit. The proposed $0.00325 
per share executed credit will not have any such requirements. Thus, 
the lower credit reflects the absence of additional market-improving 
behavior required to receive the credit.
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    \8\ Id.
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    The Exchange believes that $0.00325 per share executed credit is an 
equitable allocation and is not unfairly discriminatory because the 
Exchange will apply the same credit and criteria to all similarly 
situated members. Like the current credit, the Exchange will not 
require a member to meet any qualification criteria to receive the 
credit. As a consequence, members will continue to have the opportunity 
to receive a significant credit for such orders, which the Exchange 
believes will also continue to provide incentive to members to enter 
such beneficial orders. In this regard, the Exchange notes that 
displayed liquidity promotes price discovery and retail orders often 
represent investors with long-term investment horizons.
    Last, the Exchange notes that the proposed credits, like the 
current credits provided for Designated Retail Orders, are available 
for orders that have originated from natural persons only. The Exchange 
believes that limiting the credit to Designated Retail Orders is an 
equitable allocation and is not unfairly discriminatory because the 
credit is designed to attract retail order flow to the Exchange, which 
also benefits other market participants (including non-natural persons) 
by providing additional liquidity to the Exchange with which such other 
market participants may interact. As noted above, displayed liquidity 
promotes price discovery and retail orders often represent investors 
with long-term investment horizons, both of which benefit all market 
participants by providing more liquid markets and a more diverse group 
of market participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or credit opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees and credits to remain competitive with other exchanges and 
with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
    In this instance, the proposed changes to the credits available to 
members for execution of securities in securities of all three Tapes do 
not impose a burden on competition because the Exchange's execution 
services are completely voluntary and subject to extensive competition 
both from other exchanges and from off-exchange venues. The proposed 
credits are reflective of the Exchange's desire to allocate credits and 
rebates to their most efficient use. The Exchange does not believe that 
proposed changes will reduce the level of Designated Retail Orders 
provided to the Exchange, but may reduce costs incurred by the Exchange 
in supporting the incentive. Thus, the proposed changes reflect a 
balance of targeting the correct level of incentive for the behavior 
sought. As discussed above, the proposed credits are consistent [sic] 
the credits provided by other exchanges for retail orders. In sum, if 
the changes proposed herein are unattractive to market participants, it 
is likely that the Exchange will lose market share as a result. 
Accordingly, the Exchange does not believe that the proposed changes 
will impair the ability of members or competing order execution venues 
to maintain their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\9\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 9354]]

including whether the proposed rule change is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-013 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2018-013. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-013, and should be submitted 
on or before March 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04420 Filed 3-2-18; 8:45 am]
 BILLING CODE 8011-01-P